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PMT=120, N=5, I/Y=9 -> PV = 508.766 K BGN Mode CF0=200 CF1-CF4=80 I/Y=9 PV=459.178 Diff in PV=49.589
- Find the PV of the 5 annual payments of $120,000 he is already supposed to make. Since the payments occur at the beginning of the year, set your calculator to the “BEG” mode. PMT = -120,000, N = 5, I/Y = 9, FV = 0 … PV = $508,766 2. Find the PV of the payment plan the owner offers Williams. Add this number to the $200,000 payment Williams will be required to make in the beginning if he accepts the payment plan. Treat the $80,000 payments that occur at the beginning of the year as payments that occur at the end of the previous year. Therefore set your calculator to the “END” mode. Discount the 4 payments: PMT = -80,000, N = 4, I/Y = 9, FV = 0 … PV = $259,177 The total PV of the owner’s proposed payment plan and the downpayment = $259,177 + $200,000 = $459,177 Savings = $508,766 - $459,177 = $49,589
yup…option 1…there is a saving of $49,589. discount 120 for 5 annual pmts in BGN mode. dicount 80 for 4 annual pmts and add 200.
alternatively, keep you calc in END mode. and for the first piece get the PV and multiply by (1+r)
Thanks for the help. I got confused because the 2nd part of the question he pays 200,000. I didn’t know what to do with that.